South Africa is in the grip of
an unemployment crisis. The latest unemployment figures from Statistics South
Africa show that the official unemployment rate has increased to 29% in 2Q 2019
(a QOQ rise of 1.4% from 27.6% in 1Q 2019).

This represents the highest
unemployment rate since 2003. The expanded unemployment rate, which includes
those who have given up looking for work, now sits at 38.5% or 10.2 million
people (the highest number ever in absolute terms).

Among young people, the unemployment
rate is even worse. Some 56.4% of 15- to 24-year-olds and 35.6% of 25 to 34-year-olds
are unemployed, as per the official definition of unemployment (apply the
expanded definition, and this rate rises to 68,3% and 45,1% respectively).

As we argue in a recent CRA report, the largest pool of
potential human capital is also the segment with the highest unemployment.

“[We]
have to be innovative and combine that with our willingness to be as creative
as possible. We are essentially in a deep and serious crisis and we should
never rest if so many of our compatriots are out of work.”

Low growth not the only problem

Why is SA’s labour market
shedding jobs?

The primary reason is low
economic growth. Our analysis reveals a close relationship between growth and
job creation. Significant reductions in unemployment were seen between 2004 and
2006, when South Africa’s real GDP growth rate averaged around 5% for the three
consecutive years. At the time, unemployment stood at around 23%. Conversely, growth
rates of 0.7% in 2018, and 0% year-on-year and -3.2% QOQ in 1Q 2019 correlate
with widespread job losses. The notion of “jobless growth” is not
supported by evidence.

A second, related, cause is
the broader economic policy framework that is hostile to business and
investment. To take but one example, the Mining Charter has stifled new
investment in the mining sector. While mining accounted for approximately 427 000
formal jobs in 2018, that figure had dropped to 376 000 jobs by 2019 (a decline
of 11.9% or 51 000). Policies such as Expropriation Without Compensation
and the National Health Insurance fund represent further potential challenges
to the private sector.

Third, poor education and low skills
levels are a critical point of weakness in the labour market. This means that young
people entering the job market are ill-equipped to meet the demands of a
services-orientated economy. Unskilled South African workers risk being left
behind as the Fourth Industrial Revolution disrupts labour markets around the
world.

The fourth factor is labour
policy itself. SA’s deep structural unemployment cannot be attributed to a
single piece of legislation or regulation alone. Underpinning all labour policy
is the concept of ‘decent work’, which implies that low-wage employers are
inherently exploitative. SA’s emerging market competitors, such as Vietnam and
Ethiopia, have taken a different approach, preferring low-wage employment to
mass unemployment. South Africa should follow suit.

The new National Minimum Wage,
which came into effect in January 2019, requires employers to pay R20 per hour
or R3 500 per month. The full effects of this policy are yet to be borne out,
but its implementation potentially prices millions of low wage workers out of
the market. Tellingly, employees of the government’s own Expanded Public Works
Programme are exempted from the National Minimum Wage, receiving R11 per hour.

Everyone should have the right
to work and the right to sell their services on terms that they agree. The
answer is to give an unemployed person back their right to contract at
conditions acceptable to them.

Our judgement is that new
minimum wage policy, political messaging on decent work, and the advance of
technological innovation will deter the employment of younger and less
experienced people to a greater extent than ever before. The entire policy
framework is misaligned, requiring much “creativity” on behalf of the
president and his advisors to address the crisis.

David Ansara is the Chief
Operating Officer of the Centre For Risk Analysis (CRA). Hermann Pretorius is
an analyst at the CRA. This article is adapted from the CRA’s monthly report,
the Macro
Review. Views expressed are their own.

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